SBA Drops Appeal of Court Order to Release Report on Billions of Dollars in 'Vendor Deception'

'Vendor Deception' Explains Why Billions in Small Business Dollars Go to Corporate Giants

June 21, 2005

WASHINGTON, June 21 /PRNewswire/ -- The Small Business Administration made a surprise announcement late Friday afternoon stating they had dropped their appeal of a federal court order to produce the original draft of a report on why billions of dollars in federal small business contracts wound up in the hands of Fortune 500 firms and large businesses. The American Small Business League had sued the SBA for the release of the original draft of the report. ASBL believed the report found evidence of intentional fraud.

The SBA claimed $67 billion in federal contracts went to small businesses in 2003. Information contained in the report indicates that the SBA significantly inflated that number. Congress mandates 23% of all federal contracts be awarded to small business.

The version of the report released Friday by the SBA Office of Advocacy cited "vendor deception" as one of the eight reasons large businesses had received small business contracts. Under federal law, misrepresenting a firm as a small business to receive federal small business contracts is a felony with penalties that include ten years in prison, a $500,000 fine, cancellation of all federal contracts and permanent debarment from doing business with the government.

The report also found, "The Government's lack of transparency in making simplified and small acquisitions is leading to more improperly assigned small business procurements. This, in turn, is fueling the misrepresentation that small business contract spending is higher than it really is."

After thirteen months and four revisions, the SBA released an edited version of the report in December 2004 that omitted "vendor deception" as one of the reasons small business awards went to large businesses. That report found that 44 Fortune 1000 firms such as Raytheon, Hewlett-Packard, Northrop Grumman, General Dynamics and Buhrmann (a Dutch firm) had received over two billion dollars in contracts that had been reported by the SBA as small business awards.

The American Small Business League projects $30 to $50 billion a year in small business contracts actually go to big business.

During the course of the litigation, the SBA and the report's author Paul Murphy of Eagle Eye Publishing consistently maintained the report contained no evidence of intentional misrepresentation. The SBA and Murphy claimed the report only found companies that had been "miscoded" as small business awards.

Lloyd Chapman, President of the American Small Business League, maintained the report found evidence of intentional fraud and misrepresentation in federal small business contracting programs. Chapman said, "This latest version of the Eagle Eye report clearly shows the SBA and Paul Murphy did not release the complete findings of this report to the public and the media. They are playing word games to try and cover up the fact the SBA has been reporting billions of dollars in awards to some of the largest companies in the country as small business awards to inflate their statistics. I want someone from the media to have Paul Murphy explain the difference between fraud and vendor deception. I believe vendor deception and fraud are synonymous."

In a May 2005 interview with Federal Computer Week magazine, Murphy said the purpose of the report was "not to identify reasons that companies are incorrectly coded." In a December 2004 interview with Minority Business Insider, Murphy admitted he found fifteen different reasons why large firms get miscoded as small businesses.

In February and March of 2005, the Small Business Administration's Office of Inspector General issued three reports that found large businesses had made "false certifications" to obtain small business contracts. SBA OIG Report #5- 15 released February 2005 stated, "One of the most important challenges facing the Small Business Administration and the entire Federal Government today is that large businesses are receiving small business procurement awards and agencies are receiving credit for these awards."

The SBA's Inspector General found evidence of fraud in federal small business contracting programs as early as 1995 in their semi-annual report.

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